“I will promote freedom at all costs,” is the first line of the Draper University pledge. Draper University of Heroes is a school I created to encourage people with ideas and energy to pursue their visions through entrepreneurship and risktaking. For an entrepreneur, freedom matters most. The ability to try new things without government interference is paramount to the success of an innovative community.
Because freedom is so important to me, I appreciate all the great work the Independent Institute is doing. They understand freedom. Freedom leads to prosperity, to economic growth, and to innovation. While regulation and government control make us feel safer (although at some point they become less safe), they lead to stagnation, fear, and loss of human spirit.
History and studies have shown that a lighter-touch government leads to more innovation, higher economic growth, and a happier, harder working population. A heavy-handed government slows economic growth and stifles creativity. As governments spend more of their people’s wealth, they tend to add more rules and regulations and their innovation and GDP growth decline.
For the past 50 years, Silicon Valley has been perhaps the greatest engine of freedom in the United States, with entrepreneurs and innovators driving great change. It is comforting for innovators to know that Washington, DC, is 3,000 miles away, so they will be relatively unimpeded by the rules and regulations that stymie an innovation economy.
When there is a new innovation, there is almost always a sociological change. That change may affect the customers, competitors, and suppliers of the business, but it also affects the status quo. Fearmongers will spread fear about the new innovation. Once the new innovation starts to spread, these complainers go after the law, the press, and the government to try to keep things the way they were. Lawyers prepare for battle. Competitors fill the press with concerns, and try to make the government take notice and take action. Fortunately, our government generally allows innovation to continue for some time without intervention, but there are some departments that stop innovation in its tracks.
The FDA makes getting a new drug on the market a time-consuming and hugely expensive process, and they often get it wrong. The SEC took a perfectly good law that the JOBS Act provided and plucked it clean of wings so that few entrepreneurs try to raise money that way. The DOD continues to create so many barriers to sell to them that innovators avoid them and we end up with antiquated technologies defending us.
Many innovations are being stifled today by fear. Robots make all our lives easier by doing mundane work, allowing us to have more free time to further innovate, but skeptics will tell you that robots are going to take all our jobs or worse, take over the world and destroy humanity. Uber allows us to travel from one point to another seamlessly with one touch on a smart phone, but some will tell you that taxi drivers are safer and the company has bad morals. Skype allows us to see and hear each other from anywhere in the world, but some said that using people’s computer power is an invasion of privacy and people will use the service for pornographic pursuits. Governments want to put all our fears to rest, so they act, and every new regulation affects millions of innovators. This cycle gets expensive and stifling.
And governments are now in competition with each other for the innovators of the world. With our system here in the United States, every great innovator creates a new product or service, which, if successful, leads to more governmental departments, which brings on more regulation, ultimately lessening the incentive for innovation here. Companies innovating around drones, Bitcoin and initial coin offerings (ICOs), driverless cars, and many new drugs are moving their operations overseas because of regulations (or the threat of regulations) here.
What if policymakers instead adopted an entrepreneurial mindset by hiring slowly, firing fast, cutting ineffective programs, and innovating wherever possible? There is no reason why governments can’t make full use of the latest ideas and technologies developed for the marketplace. Such efforts are underway in some countries, but the U.S. seems to be lagging.
Estonia has created a system that allows citizens to use a digital signature for all communications with the government. Registering a new company takes only 20 minutes, and even foreign investors can digitally sign business documents without going to Estonia, thanks to its e-Residency program. Citizens can now cast their votes online, open a bank account in 24 hours, and the taxpayers receive their tax refunds in only two days.
Such innovation had saved the country the equivalent of 2 percent of its GDP, former Prime Minister Taavi Rõivas told me when he visited Draper University. Further, low taxes and the ease with which foreigners can do business there have resulted in tremendous flows of foreign capital to Estonia, leading to rapid gains in labor productivity and a corresponding rise in wages.
“Estonia received more foreign investment per capita in the second half of the 1990s than any other country in Central and Eastern Europe,” says former Prime Minister Mart Laar. I wouldn’t be surprised if Estonia continued this remarkable progress, given its emphasis on cultivating an entrepreneurial mindset and rapidly deploying new innovations in government.
Japan recently agreed to accept Bitcoin as a recognized currency. That sent a message to all those would-be Bitcoin and blockchain entrepreneurs that Japan would be the regulation-friendly environment that would allow them to try out a new form of token.
Singapore, South Korea, and some of the smaller European and more open Middle-Eastern countries are competing for the innovators too. They encourage the blockchain, create innovation zones, give tax holidays, and have begun to copy the Estonian model of E-Government.
What is government, really, but an insurance company that keeps good records of citizens? The blockchain keeps a perfect record, and through a smart contract, it can pay out the insurance effectively, securely, and fairly. Why not work to replace a few bureaucracies with the blockchain? We should be looking for solutions like this to improve our way of governing.
Could our civic culture become innovative too?
The inertia, inefficiencies, and partisanship that plague our political system suggest that we may get better results simply by making it easy for private startups to tackle social problems. One way is by helping to widen the scope of incentive competitions.
The X Prize, a prime example, offers multimillion-dollar awards for the advancement of private spaceflight and lunar exploration, fresh-water abundance, adult literacy, women’s safety, Alzheimer’s cures, and other worthy goals. But for incentive contests to work at the intersection of public policy and social good, we must change numerous laws and regulations to enable them.
Let’s first look at what we might accomplish. To improve education, we could create businesses that offer after-school programs to allow students more life-relevant courses and allow working parents to leave their child at school for the entire workday—not just the teachers’ union-mandated workday.
To help the homeless, we could offer prizes for creating safe, economically self-sustaining live-work spaces equipped with social services and job training. Industrial-size 3-D printers could build them quickly.
To improve prisons, we can offer incentives for rehabilitation, like punishing the prisons for injury in prison and recidivism while offering prisons a percentage of taxes paid by prisoners who return to the outside and build positive lives.
To conquer the business cycle, we could offer a prize for creating an entire financial system resistant to asset bubbles and recessions, one where blockchain technology would promote stability and remove the possibility of human error and mischief.
We could advance world peace by giving out prizes for organizations that turn adversaries into partners, such as with Special Enterprise Zones that give both sides a financial stake in avoiding armed conflict. In the words of John Lennon, “All we are saying is give peace a chance”—by making it pay.
Private investment, ICOs, and philanthropy could finance the prize money, but these competitions would be much more easily launched if we make changes to our public policies, such as reforms to occupational licensing laws, municipal building codes, banking and securities regulations, and international commercial law. One way to align incentives here would be to make government-worker pay increases tied to GDP growth rather than the CPI.
Given the high stakes, we should be pressing our elected representatives to make the necessary changes. By doing so we can disrupt the dysfunctionality of politics and transform civic engagement into a massively positive-sum game.
On the surface, it seems easier for us to delegate responsibility for our poor, our criminals, our sick, and our uneducated to our government. But in practice, if incentives are aligned, it is far more effective to keep the responsibility with the people. The people can then innovate and provide solutions—cheaper and more effective solutions than a government bureaucracy.
It seems we would rather have the poor, the sick, and criminals out of our sight and out of our minds than try to come up with creative solutions to help them. We can say things like, “People should have a right to better living conditions,” or “Everyone should have access to healthcare,” or “Let’s put those dangerous criminals away for life,” or “Let’s make education equal for all children.” And then we leave it in the hands of the government to create and standardize a system that seems fairer for all. But this is ineffective because we dehumanize it. We lose contact with those needy people since they are the government’s responsibility now, and while we think we are helping them, we are making it worse, making them outcasts of our society.
By moving innovation through the food chain, we will more easily solve the world’s problems and build a more utopian planet. We can build a happier, healthier, and more prosperous society, and we can reduce the costs of big government.
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Tim Draper is a venture capitalist in Silicon Valley and founder of Draper Associates and Draper University of Heroes. He is being honored at the Independent Institute’s 30th Anniversary dinner, “A Gala for the Future of Liberty,” to be held Sept. 22 at the Ritz-Carlton San Francisco.